APAC reinsurance holds steady as capacity eases hard market

Fitch Ratings has reported that pricing in the Asia-Pacific (APAC) reinsurance market for 2024 remains stable, with sufficient capacity helping to ease the hard market conditions seen in 2023. Last year, the market was marked by interest rate hikes and tighter renewal terms.

However, reinsurers’ growing appetite for catastrophe risk, supported by an orderly retrocession market, may increase their exposure to potential losses. Despite rising competition, regulatory changes, climate impact, and economic risks, reinsurers are expected to maintain profitability through careful risk selection and disciplined pricing.

Climate change remains a major concern for the APAC region due to its vulnerability to natural disasters. In its report, Fitch outlines that the increasing frequency and severity of extreme weather events will drive up reinsurance claims, which could disrupt current pricing stability.

Reinsurers are expected to adopt a more cautious approach to natural catastrophe coverage, enforcing stricter limits and maintaining rigorous underwriting standards to mitigate risk.

Capital levels for reinsurers in Asia remain aligned with their business needs, bolstered by growing shareholders’ equity from retained earnings. In countries such as Japan, South Korea, China, and Hong Kong, the implementation of IFRS 17 has contributed to stable or improved returns on equity, driven by better underwriting practices and investment gains.

Fitch also forecasts a rise in insurance-linked securities (ILS) transactions in Asia, spurred by investor interest and climate-related initiatives. The ILS hub in Hong Kong is expected to promote market growth and stability, although challenges remain, including the need for further development and increased participation from Asian investors.

Last month, AM Best reported that upgrades to long-term issuer credit ratings (Long-Term ICR) exceeded downgrades for Asia-Pacific re/insurers in 2023, with improved balance sheet strength and favorable operating performance driving most of the positive changes.

According to the report, more than 75% of AM Best’s Long-Term ICRs for Asia-Pacific rating units were rated “a-” or higher, with stronger results skewed towards mature markets as opposed to emerging markets.

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